Russia and the Diamond

Industry

Diamonds in Russia have a history almost as long as mining itself, and some regions of the country are entirely dependent on diamond polishing for their economy. 

The state-controlled Russian diamond mines operate differently than they do in any other country, and the government is highly interventionist compared to most other jurisdictions. Despite some of these inherent advantages, the Russian cutting and polishing industry still faces many of the same challenges as the rest of the industry.

Russia is a natural resource superpower, due in part to its vast geography. In 2015, the World Bank estimated that Russia is sitting on up to $75 trillion worth of natural resource endowments. While Russia is the largest diamond-producing country, rough production is a small proportion of overall resource exports, and the country's polished diamond output is small relative to its rough diamond sales. Russia manufactures around $650 million in polished diamonds each year, representing about 3% of the global market. The local polished diamond market in Russia is limited, and most of the diamond consumer goods in the country are imported. Today, most polished gems from Russia are exported, although this has not always been the case.

The Russian government has always supported the diamond industry, and continues to do so today. Most of the diamond manufacturers in Russia are state-owned companies, although a handful of private companies also operate in the country. Historically, government-owned Gokhran subsidized both the rough and polished diamond sectors by purchasing, at market prices, any goods that they themselves couldn't sell. This arrangement has actually been going on for many years, and the scope of inventories held by Gokhran is an intriguing mystery.

The manufacturing industry in Russia has benefitted over the past few years from a decline in the value of the ruble to the US dollar. However, high labor costs have still made Russia uncompetitive compared to lower-wage countries. Also, high interest rates in Russia make financing costs expensive for manufacturers, which often have long cycles between rough diamond purchases and polished diamond sales.

Unlike many Sub-Saharan African countries that are relatively new to the diamond beneficiation experiment, Russia has a long history of working together with the rough and polished industries to help ensure success. However, even with a government willing to support the industry, Russian manufacturing companies are not immune to the current situation in the midstream. Like many others, their survival will depend on profitability returning to the midstream cutters.

There is no doubt that diamond exports from Russia have been a critical source of revenues and foreign exchange for many remote areas of the country. Regardless of the fate of the manufacturing industry, rough diamond production will continue to benefit the country's population for decades to come.

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